Homeowners Insurance Question

C

CaboWabo

500+ Posts
So I'm getting quotes on homeowners insurance a home that I will be closing on in August. I believe the home is worth $255,000 (don't have the appraisal yet). Anyway, I do an online quote with AIG and put in $255K as the value of the home. I get the quote for $1,132 and it says that the dwelling is covered for $351,000. I call AIG and ask them why the coverage is for $351K and they tell me that this is how much it would cost to replace the home based on square footage.

It seems to me that they are trying to sell me more insurance than I need. First of all, probably around $40K of the value of the home is the lot, and I'm not going to pay to insure bare land. Second, I'm pretty sure that if my house burns down, they are going to be able to re-build the house for a hell of a lot less than $351K. I doubt very seriously that they are just going to cut me a check for $351K.

What's the deal here? Can I tell them that I want to insure the dwelling without this "replacement cost" crap? It just seems like they are selling me more insurance than I need for a higher premium, even though there is almost no chance they'd ever have to pay the $351K limit. Any feedback appreciated.
 
I think that's pretty standard. I guess the reasoning is that it was easier to build the first time (i.e. builder was building several houses at the same time?)

That being said I don't think my insurance was marked up that much (maybe 50k over not 100k). Some insurance covers you for overage due to extreme circumstances (i.e. paying a premium for roofers ala katrina, rita)
 
All I can tell you is that if your house is on fire to the point where it's gonna be really bad, then I suggest you try to get it totally burnt without anything left standing, otherwise insurance will only repair, not totally rebuild. Your payout is a LOT less based on how Texas' favors the insurers.

texasflag.gif
hookem.gif
texasflag.gif
hookem.gif
texasflag.gif
 
they tried to pull that on me last year at renewal time - by stating that I needed an additional $75k. They were able to knock it back down to the original amount after we discussed the specific finish-out of the house. i'm sure i'll have to do it again this year.
 
Usually that just say its something like $100 per sq ft, with maybe $20k to clean up the lot. That number is adjusted up if the house is really fancy.

Don't go too far the other direction. A lot of people think they are getting some great bargain because they are insuring their house at half of what its would be to rebuild. That can bite you back, if your house is underinsured by less than 80% of the replacement cost, you will be faced with a coinsurance penalty. So lets say you insure your house for $150k, but it would cost $300k to replace. Your garage has a fire, causing about $40k in damages. Your carrier will only pay $20k, because you were underinsured. That $30 you were saving a month aint such a good deal anymore.
 
Clever hit it on the head. The insurance company has a really good idea of how much it costs to rebuild a home from the foundation up. These days I'd say $100/sqft is probably low depending on where you live.
 
My parents had a house fire back in February and it caused enough damage that they're pretty much rebuilding the whole thing (basic frame is still there, but the rest is being re-done). They were adequately insured (including for their belongings - very important to remember!), and they'll be getting a nice house once the reconstruction is done.

My point after seeing what they (and the rest of our family) have been through because of the fire: going through this kind of **** is hard enough, don't also risk not having enough coverage to replace your home & belongings. If the worst does happen, you don't want to have to deal with not getting your house back.
 
if there is any sort of complicated architectural feature in your house that would involve several days of intricate skilled labor to reconstruct it, that may be a reason for it being so expensive to rebuild.

Back in my loan officer days; Had a 100 year old farmhouse that we were doing a purchase on . House was worth around $300k. However, the insurance company insisted on insuring the property for over $650k as the replacement cost.

Turns out the entire basement and first floor was made of iron- reinforced river rock in masonry. And the roof was made of a very rare and specific type of locally quarried slate

The insurance agent estimated it would take 4 skilled bricklayers(or masons) at least 3 full weeks to properly relay the foundation, and the 1st floor, and another week or 2 for it to cure enough to start building on top of it, and that the river rock and slate would be about $100-150,000 to re-aquire.

The extra $250 per month really would have put a strain on the couple if they bought the house- so they ended up backing out on that loan and doing another for a similarly priced newly built house with normal insurance coverage
 
Thanks for the replies. I didn't think about the cost of removing the remnants of a burnt home. I still think I'm paying for too much insurance, but I'd rather be overinsured than underinsured.
 
CaboWabo:

The same thing happened to me. I just told them how much coverage I wanted. They are trying to sell you more insurance, that's all. Remember: you are the customer. You tell them what you want. Don't let them convince you that something has to be this or that way. Don't let them tell you "we'll see what we can do".
 
shop around. my insurance has a 25% coverage deal. my house is insured for 200k. if it burns down and ends up costing more, they'll cover it up to 25%. my house is 60 yrs old and the land is worth twice as much as the dwelling. you don't want to be under covered, but you don't want to pay for more than its worth. with the recent hail, i'm getting a new roof. my deductible is 1%. that's 2k out of my pocket instead of 6k. consider your house burning down, but consider everything else that happens to houses.

talk to the ppl you have your car ins with. they might give you special rates for having multiple accounts with them
 
All insurance companies have certain underwriting guidelines they use to determine insurability and to determine rates. These guidelines often include information concerning insurance to value, prior insurance coverage, business exposures, credit standing of the homeowner, previous claim experience and condition of the premises. These guidelines are not a violation of the Texas Insurance Code as long as they are filed with the Texas Department of Insurance and applied in a uniform manner.

Most insurers require their customers to insure their homes for 90% to 100% of the estimated replacement value of the dwelling, as part of their underwriting guidelines, if the homeowners policy purchased is a replacement cost policy. Some policies will pay above the policy limits in the event of a total loss any where from 25% up to 100%.

It is important for you to understand that the contractual agreement under a replacement cost policy requires the insurer to replace your home if it is damaged or destroyed. The coverage requirements in order to do that are not necessarily the same as the market value or tax appraisal value of the property.

You also need to understand that it costs more to clear the site and rebuild a home that's heavily damaged or destroyed than to build a new home due to many factors, including economy of scale, debris removal, etc.

The agent or company should be willing to discuss and verify with you the features of the home used for this calculation, to ensure its accuracy.

The insured has the right to request a reduction in coverage, but it is also important to understand that a company may decide to nonrenew a policy if they determine that the risk does not meet their minimum underwriting requirements related to replacement cost values.

I usually suggest the policyholder seek replacement cost figures from a local builder or residential reconstruction contractor to substantiate how much it would cost to rebuild the home if it were totally destroyed. You may also utilize free replacement cost calculators available on the internet, such as the one at the following web site: The Link
 
If you believe your mortgage company (or insurance company) is trying to make you insure your home for more that it's reasonable replacement cost value, there is a law in the texas Insurance Code that can will help you out.

§ 549.0551. REQUIRING CERTAIN AMOUNTS OF COVERAGE.
(a) A lender may not require as a condition of financing a
residential mortgage or providing other financing arrangements for residential property, including a mobile or manufactured home, that a borrower purchase homeowners insurance coverage, mobile or manufactured home insurance coverage, or other residential property insurance coverage in an amount that exceeds the replacement value of the dwelling and its contents, regardless of the amount of the mortgage or other financing arrangement entered into by the borrower.

(b) For purposes of this section, a lender may not include
the fair market value of the land on which a dwelling is located in the replacement value of the dwelling and its contents.

Added by Acts 2005, 79th Leg., Ch. 69, § 1(a), eff. May 17, 2005; Acts 2005, 79th Leg., Ch. 728, § 11.017(a), eff. September 1, 2005.
 
You must log in or register to reply here.

Weekly Prediction Contest

* Predict HORNS-AGGIES *
Sat, Nov 30 • 6:30 PM on ABC

Recent Threads

Prediction Results Threads

2024 Schedules

Back
Top